Cheer on the divi payers

DIVIDENDS have always mattered, but in a world of near-zero interest rates they matter more than ever. One of the two rules for investing over the very long term is that twothirds to three-quarters of the return on equities comes from dividends rather than capital growth.

The other is that, historically, equities bring better returns than bonds or cash.

So we should celebrate Footsie giants yesterday declaring solid dividends.

GlaxoSmithKline held its 80p dividend and committed to the same for next year too. It currently yields just over 5pc. And Rio Tinto is restoring its dividend after a miserable time, which led to a cut last year. It should also yield around 5pc.

Add in BP’s held dividend on Tuesday, and a picture of confidence among the big caps emerges. This is important because we tend to forget just how much we rely on the flow of dividends from a handful of companies to sustain our pensions. It obviously varies from year to year, but as a rule of thumb more than half the dividend income from FTSE 100 companies comes from the top 20 payers, and about 40pc from the top ten.

In aggregate, the yield on the FTSE 100 index is just over 4pc, which sounds fine. But you need the big payers to keep paying. You do not want to be in the position of many private investors in 2008, who relied on divi- dends from the Royal Bank of Scotland and HBOS to pay their pensions.

Dividends for the Footsie as a whole are covered only one-and-a-half times by profits. At least they are covered, but a lot of us would feel more comfortable if that ratio was nearer two.

There is a further twist. We know that on a very long view, like 40 years or longer, equities have brought the highest returns, but what about the next ten years?

Of course we cannot know, but in last year’s Credit Suisse Global Investment Returns Yearbook, Jonathan Wilmot suggested that over the next decade real bond returns would be close to zero, with real equity returns close to 4pc-6pc a year.

The next edition is not out until later this month, but the experience of 2016 very much supported that view. The FT global all cap index rose by 8.8pc last year, for it was indeed a good year for shares. Meanwhile, the world government bond index was up just 1pc.

We are only just starting the annual company reporting season. Fingers crossed those dividends, and the earnings behind them, continue to hold up.

Curse of the HQ

APPLE’S gorgeous new circular headquarters, Campus 2, is nearing completion in Cupertino. The garages are finished and 70pc of the solar panels on its roof are in place.

Rows of trees are being planted, the fitness centre is being landscaped, and so on.

The campus, designed by the firm of Sir Norman Foster – familiar to us with Stansted Airport, Wembley Stadium and HSBC’s headquarters in Canary Wharf – is, according to him, based on the idea of a London square, with buildings round a garden, though it looks more like a larger and prettier version of GCHQ. Anyway, it is stunning, except...

Except if you think back over what happens to great corporations when they move into splendid custom-built headquarters, it is hard not to feel a smidgen of unease. Royal Bank of Scotland’s 78-acre campus near Edinburgh airport was opened by the Queen in September 2005, just three years before catastrophe struck.

The best example in the US is the Pan Am building in New York, which was the biggest commercial office block in the world when it opened in 1963. Many cite the long decline of Pan Am to decisions taken in the 1960s, though it did not finally go bust until 1990. The building lives on as the MetLife Building, showing perhaps that insurance is a safer trade than airlines – though I’m not sure all those Lloyd’s names who lost their shirts just after Lloyd’s of London moved into its new headquarters in the City would agree.

Let’s hope Apple avoids the curse of the new headquarters. And, come to think of it, let’s hope those Trump towers around the globe don’t carry a troubling message too.

Honesty over Greece

A THOUGHT about Greece. If a company is unable to service its debts, that leads to bankruptcy, humiliation and eventual disappearance. If a country is unable to service its debts, that leads to a rescue. Countries cannot disappear. Their debts have to be written off. But that has to be accepted by the institutions that have lent the money.

So everyone should welcome the honesty of the IMF in acknowledging that Greece can never repay its debts. If that brings forward the timing of the write-off, so much the better.

How big will it be? Well, the average writeoff in sovereign defaults over the past 30 years has been around 50pc. The world has been here before.